The move made many analysts such as Piper Jaffray's Mike Grasher wonder, "Why now?"

"Clearly their credit profile is much better today than two years ago, so it makes no sense that they would take action now," Grasher said in a phone interview.

S&P Ratings Services' analyst Dick Smith -- who wrote the report along with David Veno -- said in a phone interview that the downgrade was based on a review of the industry.

"The industry is really a shadow of its former self," Smith said. "We wanted to see how the industry evolved. By the end of 2010, our expectations were that it would have been more vital and resilient than it is," he added.

Smith said that there has been significant demand for bond insurance, however since 2008 the two attempts to build new bond insurance companies failed. Macquarie Group and Citadel Investment Group's attempt to sell muni-bond insurance through a new company called Municipal and Infrastructure Assurance Corp. (MIAC) finally came to an end this month when Macquarie called it quits. Citadel withdrew from the business last year. For these reasons, the S&P analysts don't see the industry progressing.

"It's not a product that if it didn't exist there would be a calamity," Smith explained. "The industry isn't gaining traction in a meaningful way."

Grasher noted that Assured Guaranty is the only monoline insurer still writing new business so the ratings shouldn't effect Ambac ( ABK) and MBIA ( MBI) , "who are on life support." Grasher said that as far as the future of the industry goes, there have been rumors that private equity may still be interested in building businesses in the industry.

"However, it would take a lot of time and effort to build a substantial business in the space," said Grasher.